—which is designed to increase housing supply, to improve access to housing for lower income groups and to improve the housing conditions of local authority tenants and other key groups such as the elderly, homeless persons and the disabled.
Housing is at the top of the Government's priorities. Housing is fundamentally important to individuals, households and the overall economy. There should be no doubt that this Government regards addressing housing needs as an essential element of its overall social policies.
It would help to put this whole debate into a proper perspective, if I outline briefly where we are coming from and the main strategic features of the Government's approach to housing as set out in An Action Programme for the Millennium, the Government's policy document Action on House Prices, the 1999 Estimates of expenditure for housing and the 1999 budget.
In An Action Programme for the Millennium, the Government set out its key priorities including a continuing house construction programme by local authorities and voluntary groups; refurbishment of existing inadequate housing; improvement and extension of social housing schemes; maximum co-ordination of housing policy and local authorities developing serviced sites to accelerate the supply of new houses to meet rising demands and deflate escalating house prices. In the relatively short time since the Government took office we have achieved remarkable progress in tackling house prices and the social housing measures.
In recent years, Ireland's economic growth has been little short of phenomenal. GDP grew by an average of 9 per cent per annum since 1993 and an average of 7 per cent per annum since 1990. This strong economic performance is providing real benefits to people. Inflation has averaged 2 per cent per annum in recent years. Most importantly, employment has expanded significantly, by more than a quarter since 1993 and unemployment has fallen from a peak of almost 16 per cent in 1993 to about 7 per cent in 1998. However, this economic growth, coupled with significant sociological and demographic change, has contrived to profoundly increase housing demand.
It is an inescapable fact that house prices are determined by the interaction of supply and demand. The problems we have been experiencing in the housing market in recent years are primarily a result of the imbalance that has developed between supply and demand for housing. This has occurred despite the fact that never in the history of the State have we achieved a better performance in terms of housing output. Housing output reached a new record in 1998 at more than 41,500 units, almost 8,000 up on the level set in 1996. We are building new houses at twice the level of 1993. We are building new houses at a rate of more than 11 per 1,000 population – a rate which is by far the highest in Europe and more than three times the rate in the United Kingdom. We are building 800 houses per week.
That house prices have increased steeply despite this remarkable leap forward in housing output is due largely to the fact that demand for housing has escalated at an unprecedented rate. Developments in the housing market have closely mirrored the overall pattern of growth in the economy. Clearly, our tremendous economic performance in recent years has put enormous pressure on infrastructure, including the supply and availability of serviced land. The effects of rapid growth in incomes and employment, significant increase in the number of people in the key household formation age groups, smaller household sizes and very high net immigration, have all impacted hugely on demand for housing.
This current situation has not happened overnight. As long ago as 1995, house prices were increasing significantly ahead of inflation. The problem of house prices had emerged long before this Government took office. The momentum of house price inflation, driven by an imbalance between supply and demand, was there for all to see.
The difference between this Government and its predecessor is that we did not stand back with a sense of awe and helplessness. Shortly after coming into office I commissioned a consultancy study on house prices to obtain a comprehensive and rigorous analysis of the problem that had been building for a number of years. The Bacon report, published last April, provided a sound basis for policy formulation. The Government responded immediately with a substantial and well balanced package of measures – Action on House Prices – implementing virtually all the consultants' recommendations.
In late 1997 at the same time as we commissioned the Bacon study we launched the Serviced Land Initiative. It was perfectly clear to us – and should have been to the rainbow coalition – that immediate action was required to increase the amount of serviced land for housing. House buyers were paying and continue to pay the price for our predecessor's inactivity. There is a long lead time to produce housing. Where this is compounded by serious infrastructural bottlenecks on land supply, the results are obvious.
The previous Government did nothing to address this fundamental problem. Worse still, it indulged in some very ill-judged tinkering with stamp duty rates, introducing 50 per cent increases in the rate of stamp duty on houses priced from £150,000 upwards. This showed a lamentable lack of understanding of how the housing market is integrated with people moving to different type houses as their needs change. Essentially, the message given to house owners by the previous Government was "we will tax you heavily if you move from your existing home." People tend to act rationally to financial disincentives. Consequently, there was a dearth of middle range houses on the second hand market. By failing to adjust stamp duty rates to take account of house price inflation, first-time buyers of a second hand house had to pay stamp duty at a rate of 6 per cent, which amounted to £5,000 or £6,000 on a house costing between £85,000 and £100,000. For example, as a result of the previous Government's action on stamp duty, if someone wished to move from a house valued at £150,000 to a house valued at £200,000 the transaction costs of the move were more than £20,000 of which stamp duty was £18,000.
The rainbow coalition must also have been aware that first-time buyers were being increasingly squeezed out of the starter home market by speculators – as if the problems caused by inadequate supply of new and second hand houses and penal stamp duty rates were not enough. Yet the previous Government was content to allow the activity of speculation in housing to be subsidised by over-generous tax reliefs. Investors are necessary to provide private rented accommodation. However, with low interest rates, the prospect of capital appreciation and Government incentives, housing became a one way bet. One simply could not lose if one had money to speculate. The previous Government should not have allowed such distortion to continue, especially when the main victims were the hard pressed first-time buyers whose tax breaks were far less attractive and valuable than those available to investors.
This is the sorry scenario we faced on taking office, a nightmare for the house buyer – particularly the first time buyer – and a growing threat to the continued success of our economy, with ominous signs of a bubble market developing as tax driven speculation pumped house prices upwards.
We are still grappling with the effects of the previous Government's failure to take timely action. We have taken decisive action and will continue to push forward with maximum determination. There are welcome signs that we are turning the corner.
The measures introduced in the Government's Action on House Prices addressed factors that were causing overheating or distortions in the market and were designed to restore a better balance between supply and demand. Measures to assist first-time buyers formed a key element of the package, including removal of fiscal incentives to investors, who had been pricing low income buyers out of the housing market; an increase in the income limits for the local authority shared ownership scheme; significant reductions in stamp duty rates, particularly at lower price levels; and measures to boost housing supply, through the Serviced Land Initiative and increased residential density.
Reduced interest rates arising from our membership of EMU will also help affordability.
The full effect of many of the measures taken, particularly those designed to promote housing supply, are only beginning to be seen and will continue to operate into the medium term. Positive effects have already been reported by market sources, including indications of easing in house prices, investors no longer squeezing first-time buyers out of the starter home market, and an increase in the number of secondhand houses coming on the market, as a result of stamp duty reductions.
The house price figures available for the December quarter of 1998 provide strong evidence of a significant moderation in the rate of house price increase in the second half of 1998, particularly new house prices. This clearly reflects the fact that the measures in the Government's Action on House Prices stopped investors from bidding up prices in the new starter house market where they had been buying up houses virtually in job lots.
The overall effect of these last quarter trends is that the annual rate of house price increase in Dublin was at a lower level than at any period since the third quarter of 1997. We are now beginning to see the results of the action taken by the Government and the trend of house price stabilisation that is emerging – for example, second-hand house prices in the Dublin area increased by less than 1 per cent in the December quarter – will be greatly reinforced in the months and years ahead, particularly as our efforts to ensure continued increase in the supply of housing bear fruit.
I have emphasised on previous occasions the need to avoid demand-led interventions, such as increased grants or subsidies that could, in the prevailing market conditions, only lead to a resurgence of steep house price escalation. Increased supply of housing is ultimately the only way to meet the increase in the level of demand. I must, therefore, reject the populist demand in the motion for an increase in the first-time buyers grant which could achieve little except to further boost new house prices and pass the benefit on to builders.
The Government's strategy with regard to stamp duty is to reduce its burden throughout the housing market, thereby helping to increase activity and mobility in the market. Focusing stamp duty relief on one sector of the market would simply create further anomalies.
With increased housing output we are using up zoned and serviced land at a rapid rate. As I have said, our priority is to increase housing supply and two of the key elements of the Government's strategy on housing supply are the serviced land initiative and increased housing density. The serviced land initiative to increase the supply of serviced land for housing, launched prior to the Bacon report, has been twice augmented since and complemented by funding for road access to development land, bringing total Government funding to £44 million. This special Government funding will result in overall investment of over £100 million in land servicing and access, yielding some 100,000 additional sites for housing, the equivalent of an additional – that phrase must be emphasised – two and a half years housing output. Local authorities have been asked to expedite delivery of schemes under the initiative.
The initiative is, of course, additional to the main water and sewerage investment programme. The recently launched 1999 programme is once again at a record level. Over £275 million will be spent on water and sewerage infrastructural development this year and the potential for this investment to bring more residential land into service will be maximised.
The proposal for increased residential density is one demand in the motion which I support unequivocally. Housing densities in Ireland are low by international standards and this is one of the supply constraints contributing to house price increases, particularly in Dublin. Increased density in cities and on high quality public transport links is desirable on grounds of sustainability and can also help to counteract problems of commuter traffic and promote the provision of more efficient public transport. Planning authorities have already been advised to promote higher densities at appropriate locations. Consultants are currently finalising draft planning guidelines on residential density and these will be available for public consultation by the end of the month.
I see increased residential density as being vital to the Government's strategy in relation to housing supply, stabilisation of house prices and sustainable development. While, as I have already said, measures to increase housing supply generally take time to have effect, the benefits of increased density can, in many cases, be felt more quickly than other supply measures. The effects can be maximised by concentrating particularly on locations, such as inner city areas or close to public transport, where high density levels are most achievable.
The release of land already in public ownership for housing would contribute towards improving housing supply. At present, the Department of Finance is actively seeking to ascertain the amount of State-owned lands which might be suitable for this purpose and I expect the results of this study to be available shortly.
The motion also called for the introduction of legislation to ring-fence development levies for use on community projects. The concept of ring-fencing is, of course, already very much part of the levying of development contributions because funding received must be spent on the infrastructure for which the development contribution was required. Development levies already make a valuable contribution towards the cost of necessary infrastructure, including water services and roads, and the issue of levies for community infrastructure is being examined in the review of the Planning Acts.
As a means of further increasing supply, I have asked local authority managers to explore fully the scope for using temporary treatment facilities to allow housing development to proceed where major infrastructural works are planned but will take some time to complete. This can, in certain circumstances, be a valuable means of bringing additional land for residential development into service much earlier than would otherwise be the case. With modern technology and the application of appropriate standards and safeguards, this can be a very acceptable and cost effective approach.
I am conscious of the importance of the private rented sector and the need to maximise its potential in meeting our housing objectives, particularly in the context of changes in Irish social patterns which are influencing the nature of housing demand such as: a reduction in average household size; a greater tendency for young single people to live outside the family home, increasingly in rented accommodation; and an increasing tendency towards contract working.
Ireland has traditionally a high rate of owner occupancy compared with other countries. Government policy will continue to facilitate this goal as the preferred option of the majority of households. However, after many years of decline, there has, in recent years, been renewed expansion and diversification in the rented sector with significant growth in demand for, and supply of, good quality apartments. The improvements which have been achieved in private rented accommodation reflect particularly the success of the urban renewal schemes.
I will shortly be announcing the introduction of the residential elements of the new urban renewal schemes in advance of the resolution of the issues which are currently under discussion with the EU Commission on the commercial and other elements of the package.
The Opposition motion calls on the Government to review the Housing (Miscellaneous Provisions) Act, 1992, so as to increase the rights of tenants and to provide incentives for the private rented sector to develop longer-term leases. The rights of tenants in private rented accommodation are, in the first instance, governed by the terms of the lease or other tenancy arrangement under which the tenancy is held. These are subject to the provisions of the landlord and tenant code which is the responsibility of the Minister for Justice, Equality and Law Reform. The consideration of what action may be warranted and possible in relation to the rights of tenants must be considered in consultation with the Minister for Justice, Equality and Law Reform and would be more relevant to the general landlord and tenant legislative code than to the Housing Acts.
Consideration of the issue of greater security of tenure has to take account of both the complex nature of the landlord and tenant code and constitutional issues. The fair and equitable balance of rights between both parties is not easily achieved. Over-regulation could have a damaging impact on the supply of rented accommodation.
A poorly thought-out legislative intervention in this area has the capacity to do more harm than good, a message clearly brought out in a recent Threshold conference on the private rented sector. My Department is currently examining possible approaches by which necessary and appropriate amendments to landlord and tenant law in the area of residential accommodation might be brought forward.
The key to achieving stability in the private rented sector is, in the final analysis, the same as in the housing market as a whole – increased supply of housing. All the sectors in the housing market are inter-related – a problem in one area will ultimately impinge on another. The fundamental supply-demand imbalance has also impinged on the private rented sector. We must, therefore, continue to increase the total supply of housing. None of the measures referred to in the motion, irrespective of how attractive some of these may be, especially for a party in Opposition, can substitute for this essential requirement.
An interdepartmental committee comprising officials of the relevant Departments is examining the issues which arise in relation to the transfer of the administration of SWA housing supplementation from the health boards to local auth orities. Transfer of this to local authorities gives rise to a number of important issues with wide-ranging implications for recipients under the scheme, local authorities and other agencies concerned. It is hoped to finalise the work of the interdepartmental committee shortly.
Our priority must be to promote long-term commitment to the sector on a basis that will work to the benefit of both the providers and tenants of private rented accommodation. Incentives for the provision of private rented accommodation are appropriate where they are well targeted and result in an increase in housing supply. The announcement in the budget of the extension of section 23 type incentives to purpose-built student accommodation provides a good example of a well targeted initiative in his area. This will contribute to the provision of private rented accommodation for third level students and should ease pressures in the general rental market in the medium-term.
The motion calls for legislation to ban the practice of gazumping. Many complex legal issues would be involved in drafting any such legislation in order to ensure, for example, that house purchasers are not locked into a contract before they have either arranged their finances or have finally decided they wish to buy the house. Following an approach by me in this regard, the Attorney General has requested the Law Reform Commission to review the payment of booking deposits and the associated practice of gazumping and to submit to the Attorney General proposals for reform in respect of those matters that the commission considers appropriate. I understand that the commission has already commenced this review. I am grateful that it has taken up this matter quickly.
The Irish Home Builders Association has recently launched a voluntary code of conduct which I understand will be mandatory for all members of the association. The introduction by the industry of such a voluntary code of practice was, of course, one of the recommendations of the Bacon report which the Government was anxious to see implemented quickly. The code sets out to deal with three issues, gazumping, phased release of developments and interim payments. It is my understanding that the three elements of the code are separate, stand-alone measures. On that basis, I regard the code as an improvement on the current situation in so far as it relates to gazumping. It sets out that the builder must provide the contract to the purchaser within four weeks or other agreed period of receipt of a booking deposit. The purchaser will then have three weeks to return the contract. During this period the builder is precluded from increasing the price or accepting an offer from another party. The protection afforded to the new house purchaser by the prevention of an increase in price and prohibition on acceptance of an offer from another party for a seven week period following payment of a booking deposit represents an improvement on the current position. The introduction of legislation in this area will depend on the effectiveness of the voluntary code and on the recommendations of the Law Reform Commission regarding the desirability and feasibility of a legislative approach to the issue.
I note the code's attempts to improve transparency in relation to the phased release of developments, although the wording is somewhat vague in this regard. I will be seeking further clarification from the Irish Home Builders Association as to the precise obligations on developers in terms of the advertising of different phases of housing developments. I will also be seeking further information from the association regarding the nature of sanctions to be applied to builders who do not comply with the code and the mechanisms and length of time involved in dealing with complaints.
I have serious concerns about the interim payments element of the code. I would not wish to see the extension of the practice of builders seeking stage payments to areas where it has not been normal practice to date. I also regard the level of the interim payments, as set out in the code, as not being in the interest of the house purchaser. The schedule of interim payments where title to the site is transferred before completion of the transaction, as set out in the code, provides that the purchaser would have 90 per cent of the agreed purchase price paid at internal plastering stage. A significant amount of work inside the house and in terms of estate development remains to be completed at that point and it is likely that a considerable amount of time may elapse before the purchaser could take possession.
I am concerned that house purchasers should not be asked to make interim payments which exceed the amounts guaranteed under the HomeBond warranty scheme. Interim payments which are not covered by the warranty expose the house purchaser to an unacceptable degree of risk. I have written to the association asking it to ensure members neither seek interim payments in excess of the Home Bond warranty nor seek to extend the practice of stage payments to areas where they did not previously operate and to furnish assurances to me in these respects. If these assurances are not forthcoming, I will take any appropriate action open to me.
Meeting the needs of persons who cannot afford to provide adequate housing from their own resources is a key element of the Government's housing policy. Through a combination of factors, including high housing costs, cutbacks in public expenditure which curtailed social housing investment in the 1980s and early 1990s, the age profile of the population and changes in the structures of household composition and size, social housing needs have increased in recent years. Considerable priority has been afforded, therefore, to tackling increased social housing needs. Our approach is two pronged – to increase the traditional local authority house building pro gramme and to expand voluntary housing activity and output under other complementary schemes such as shared ownership.